Govt to put curbs on FDI from neighbours

NEW DELHI: The government is all set to impose curbs on FDI from certain countries including China, Pakistan, Bangladesh and Sri Lanka on ''national security'' grounds.
To be targetted at specific sectors like those related to defence and certain ‘sensitive’ areas like Gujarat, the curbs will be made applicable even to cases which are currently being allowed through the automatic route.
The ministries of external affairs, finance, home, defence and commerce & industries are working on the modalities of the curbs, highly-placed sources said.
The final decision on these issues would be taken by the Cabinet Committee on Security (CCS), they added.
The government also plans to include the ‘national security’ clause in all businesses outsourced by central as well as state public sector undertakings.
Introduction of these clause in global tenders floated by these organisations would help in eliminating organisations whose participation affects national security as well as defence considerations, sources said.
According to the regulations that are being formulated, steps would be devised to reject investment from individual citizens of China, Pakistan, Bangladesh and Sri Lanka in sensitive sectors. In case of companies based in these countries, the FDI level would be restricted to 49% in such sectors. FDI from such sources would be denied permission if the location selected for the project is a sensitive area like northern Gujarat, Jammu & Kashmir, Himachal Pradesh, border districts of Rajasthan or coastal areas of Maharashtra.
Application of the ‘national security’ clause means virtual withdrawal of the automatic clearance for FDI in sensitive sectors. Representatives of some ministries, including commerce & industry as well as finance, have pointed out that such restrictions would have an adverse impact on the FDI climate. However, in view of the overriding importance of national security, they have agreed to support the restrictions that the CCS prescribes. During the discussions it has also been mentioned that China includes a ‘national security’ consideration in its FDI policy to filter out flow of investments from certain countries.
The debate on considering ‘national security’ as an integral part of the FDI picked up momentum after the September 11 terrorist attacks on the US and the controversy over more than 100 engineers of a Chinese company working in Bangalore for a software project that was suspected to be commissioned for the Taliban. The Intelligence Bureau (IB) as well as the Research & Analysis Wing (RAW) have provided several notes to the government on the security threat perception arising through FDI flows. WTO regulations would also be kept in mind while deciding on the norms related to ‘national security’ aspect in FDI.
It is not possible to restrict FDI from some countries while allowing investments from other countries due to the concept of multilateralism on which WTO guidelines are based on.
One proposal being discussed is to frame norms on FDI from China and filter others through ‘unwritten’ guidelines, sources said.
Apart from framing regulations for the RBI and the Foreign Investment Promotion Board (FIPB), the Centre is also planning to seek the support of state governments in filtering out FDI from ‘undesirable sources’ which pose a threat of national security, sources said.
CCS is expected to meet during the first week of October to discuss the issue in detail.
Sources said a high-powered committee has already been set up under the chairmanship of the Cabinet Secretary to monitor the progress in making FDI safe from the national security aspect. Secretaries in the ministries of home, external affairs, defence and industrial promotion are members of the panel.